FOMC minutes stated that further policy tightening is likely warranted and almost all agreed a gradual approach was appropriate, while several said future Fed’s Fund Rate will likely need to be above its longer-run normal value for a time.

All policymakers agreed that economic outlook has improved in the recent months, while a number of policymakers said economic outlook implies steeper rise in Fed funds rate over the next few years than previously expected.

All expected 1-year inflation to rise in coming month but noted the increase would not by itself justify a change in projected path, while many policymakers said they were confident that inflation would rise to target and stabilise around that level.

Some policymakers said future Fed statements may need to signal that policy will shift to a neutral or restraining factor for the economy, while a majority of policymakers view the retaliatory tariffs by other countries a downside risk for US.

There was little by way of an immediate reaction, however, as the dust settled, traders latched-on to the more hawkish headlines, specifically, “several” policy makers arguing that the future fed’s fund rate will likely need to be above its longer-run normal value for a time and also future FOMC statements may need to signal that policy will shift to a neutral or restraining factor for the economy. The USD moved towards session highs against the EUR, with EUR/USD falling from 1.2370 to around 1.2350 and USD/JPY rose above 107.00 from around 106.85, while moves along the Treasury curve were more muted, though the bias was for slightly higher yields.

ASIA

Asian equity markets traded subdued after a negative lead from US with sentiment dampened amid heightened geopolitical tensions after US President Trump warned that missiles will be coming to Syria, while markets also digested a more hawkish tone in the FOMC minutes. This saw a lacklustre tone for ASX 200 (-0.3%) and Nikkei 225 (-0.3%), although losses were contained as fears of an imminent strike on Syria abated with the White House National Security Council to meet on Thursday afternoon to decide on its response. Shanghai Comp. (-0.6%) also conformed to the overall gloom after the PBoC skipped liquidity operations again and amid weakness in Shanghai metals trade, while Hang Seng (+0.3%) initially bucked the trend as blue-chip energy stocks were underpinned after geopolitical concerns buoyed oil prices but then gradually fell in-line with its peers. Finally, 10yr JGBs were uneventful despite the weakness in Japanese stocks and after a 30yr auction was also ignored despite showing higher b/c and accepted prices than prior.

China MOFCOM said China opening up is its own voluntary act and is not relevant to the trade dispute with US, while it added that China will retaliate without hesitation if US escalates trade dispute. (Newswires)

Bank of Korea kept the 7-Day Repo Rate unchanged at 1.50% as expected. BoK said South Korean economy and exports are to sustain growth and that consumption will recover steadily. However, the BoK also stated that investment will slow and that inflation this year will be slightly below forecasts made in January. (Newswires)

UK/EU

UK RICS Housing Survey (Mar) 0% vs. Exp. 2% (Prev. 0%). (Newswires)

British Chambers of Commerce said domestic demand remains muted and that growth is being led by the global environment. (Newswires)

Analysis suggests that UK PM May’s officials could be looking at an approach to keep the UK in the customs union given the potential disadvantages posed by leaving the union. The piece goes on to say that the narrow referendum result and general election suggests that the UK PM does not have a mandate for a hard Brexit. (Newswires)

Italian official said the League's Salvini may be asked to form a government next week. (Newswires)

FX

The greenback attempted to nurse recent losses with DXY briefly supported from a hawkish FOMC minutes. This saw a pullback in the greenback’s major counterparts with GBP/USD on retreat from resistance just shy of the 1.4200 handle, while AUD/USD traded indecisive as support from higher oil prices was counterbalanced by weakness across the metals complex. Elsewhere, USD/JPY languished below the 107.00 handle, while HKD briefly touched the weakest point of the trading band against USD at 7.85 for the first time which if maintained, would obligate HKMA to intervene in the FX market and buy HKD.

Commodities were mixed in which WTI crude futures extended on its geopolitically-fuelled advances and broke above the USD 67/bbl level, as the ongoing tension in the Middle-East raise supply disruptions risks. Elsewhere, gold prices pulled-back following a hawkish FOMC minutes release, while copper mirrored the subdued risk tone and was pressured in tandem with weakness in Shanghai metals trade.

GEOPOLITICAL

White House National Security Council are to meet Thursday afternoon to decide on Syria response, according to sources. (CNN) Note: There were initial reports that US President Trump was to make a decision regarding Syria on Wednesday night. (24live)

UK was reportedly moving submarines within range of Syria for strikes which could begin as soon as Thursday night, although reports added that UK PM May has not yet reached a final decision on whether to join any airstrikes. (Telegraph) In addition, the cabinet will meet on Thursday and UK PM May is expected to ask approval for UK participation in action against Syrian chemical weapons infrastructure. (Sky News)

Russia is said to be anticipating information on US Syria targets and is said to be getting countermeasures, according to press reports. (Newswires)

US Secretary of State nominee Pompeo is to inform senators that years of soft policy stance regarding Russia are now over and is to tell senators that war is always last resort in testimony, according to sources. (Associated Press)

US

In spite of geopolitical risks spooking traders, lending a bid to some haven assets, the Treasury complex was only slightly higher on the day, with the curve modestly bull-flattening, and major curve spreads narrowed once again (5s30s at 38bps now, while 2s30s slipped by nearly 3bps to 68bps). There was some knee-jerk buying of Treasuries as US President Trump ramped-up the rhetoric, telling Russia to ‘expect missiles’ in Syria, and the buying pushed 30-year yields to beneath the 3.00% handle, while 10s visited 2.75%. The Treasury’s 10-year auction was soft, seeing a tail of 0.5bps (recent averages suggested it would come in on the screws). The internals were grim, with indirect participation the lowest since January 2015, leaving directs and dealers with participation above recent averages. The soft auction had surprised a few analysts, particularly amid demand for haven assets today, as the US prepares military action in Syria. US 10yr T-Notes futures settled 2+ ticks higher at 120-27.

Goldman Sachs updated its Fed forecast in which it sees a hike in June more likely now and puts the probability of such a move at 85%. (Newswires)